Is Fintech Driving the Financial Services Industry?
Financial technology is the new innovation and technology that seeks to replace traditional financial instruments in the provision of financial solutions. Financial technology has evolved as a result of intense market competition and globalization. It is a rapidly growing industry that makes use of modern technology to enhance financial activities in finance. The main feature of financial technology is its ability to facilitate financial activities through the Internet and to eliminate the need of physical interactions between parties. Financial technology is used in order to make financial transactions convenient, efficient and more secure.
Fintech has emerged as one of the most promising industries in the field of finance. The number of small and medium size banks is on the rise. To meet the increasing demand for bank products and services, most of the banks have started recruiting experienced professionals from reputed firms such as McKinsey & Company and Bain. New graduates and start-ups are attracted by the prospects of making profits through online banking and financial instruments such as investment and derivatives.
A large number of financial institutions are looking for innovative solutions to enhance their business and reduce operational costs. The number of small and medium size banks is on the rise. To meet the increasing demand for bank products and services, most of the banks have started recruiting experienced professionals from reputed firms like McKinsey & Company and Bain. New graduates and start-ups are attracted by the prospects of making huge profits through online banking and other financial instruments like derivative and investment. To attract customers, most of the banks have also started offering free online banking, credit card services and mobile banking.
Fintech is not a new concept. In fact, it is a part of the tradition of banking. However, financial institutions adopted and enhanced it to make it a part of their investment portfolio. Fintech can be classified into three categories technology driven, consumer driven and expert driven. Technology driven fintech include software applications, internet technologies and information technology. Consumer driven fintech include financial products and services offered directly to customers (for example direct payments and mobile banking), and expert driven fintech are those that are developed by highly trained financial experts, usually in finance or accounting industries.
Fintech started emerging at the beginning of the 90’s. At that time, only few people were aware of the potential of fintech and its impact on the financial services industry. Today, majority of the financial institutions and banking industries have embraced fintech solutions and are seeing tremendous growth. According to a recent report by consulting firm Bain, fintech contributed about $5 billion in profit to the US economy in the year 2021. This growth has raised a number of questions related to the future of banking and the role of fintech in it.
As many experts opine, the future of banking lies heavily on the shoulders of fintech companies, as the existing players in the financial institutions are struggling hard to maintain their market share. The scenario is not different for SME (small and medium enterprise). Small businesses cannot hope to compete in the same field with the leading financial institutions due to the special needs of the businesses. Therefore, it is clear that traditional banks will continue to emerge as major force in financing small businesses and the fintech companies providing financial advice will remain an integral part of the financial landscape of the nation.